Borders Group Reports Third Quarter 2006 Results

Monitor this Company

ANN ARBOR, Mich., Nov. 21 /-/ -- Borders Group, Inc. (NYSE: BGP) today reported third quarter results for the period ended October 28, 2006. Consolidated sales were $851.6 million, up 1.7% over the same period in 2005. The company recorded a consolidated loss of $0.64 per share for the period.

    (Logo: http://www.newscom.com/cgi-bin/prnh/20060208/BORDERSGRPLOGO )

    "Third quarter performance was as expected, but we certainly are not satisfied with these kinds of results in the long run," said Borders Group Chief Executive Officer George Jones. "To drive shareholder value long-term, we are developing a strategic plan that has four key goals -- differentiating Borders superstores from the competition in meaningful ways, including product merchandising and presentation; aggressively right-sizing the mall business; driving profitability in the International segment; and embracing innovation and technology. I'm excited about where we are headed and look forward to driving a significant turnaround for Borders Group in years to come."

    Q3 2006 Consolidated Results

    Borders Group reported third quarter consolidated sales of $851.6 million, which is up 1.7% over the same period in 2005. The consolidated net loss increased to $39.1 million, compared to a loss of $14.1 million a year ago. Gross margin as a percent of sales declined by 2.5% in the third quarter from 24.2% to 21.7% due primarily to de-leveraging of occupancy costs driven by negative comparable store sales, distribution integration costs, and increased costs related to the Borders Rewards(SM) loyalty program. SG&A as a percent of sales was up 1.3% in the third quarter from 26.3% to 27.6% due primarily to de-leveraging and the cost of strategic investments. Interest expense increased by $5.8 million to $9.3 million primarily due to higher debt levels resulting from capital expenditures, inventory investment and common stock repurchases.

    Borders Group continued to provide direct returns to shareholders in the form of dividends and stock repurchases. In the third quarter, the company repurchased 3.1 million shares of its common stock totaling $62.3 million, bringing the total for the year to 6.1 million shares totaling $123.7 million. Year-to-date, capital expenditures were $149.1 million compared to $142.6 million in 2005. Primarily as a result of these investments, over the past year, debt net of cash totaled $586.5 million at period-end compared to $315.9 million one year ago.

    Q3 2006 Domestic Borders Superstore Results

    Third quarter sales at domestic Borders superstores were $583.2 million, an increase of 1.8% over the same period in 2005. Comparable store sales in the segment decreased by 0.7% for the quarter. Comparable store sales in remodeled locations continued to trend favorably compared to the rest of the chain. Specifically, year-to-date, stores remodeled in 2005 performed 2.4% better than non-remodeled stores on a same-store sales basis. The cafe and gifts and stationery categories were the strongest performers in remodeled stores.

    Net loss for the period was $9.4 million, which compares to net income of $7.6 million a year ago. In the third quarter, the company opened 11 new Borders superstores in the U.S., ending the period with a total of 487 domestic locations.

    Q3 2006 International Results

    Total sales in the International segment were $144.6 million in the third quarter, which is up by 14.9% compared to the same period a year ago. Excluding the impact of foreign currency translation, total International sales would have increased by 10.3% for the period.

    Third quarter comparable store sales at superstores in the segment decreased by 0.3% in local currency and were impacted by continued weakness in the U.K., which was partially offset by positive comparable store sales at superstores in Asia Pacific. In the third quarter, the U.K. represented approximately 65% of total International superstore sales. Net loss for the International segment in the third quarter was unchanged from the same period last year at $10.4 million. In the third quarter, the company opened two new International superstores, ending the period with a total of 61 locations outside the U.S.

    Q3 2006 Waldenbooks Specialty Retail Results

    In the Waldenbooks Specialty Retail segment, comparable store sales decreased by 5.0% in the third quarter. Total sales within the Waldenbooks Specialty Retail segment were down 10.5% for the period to $123.8 million. Net loss in the segment was $8.4 million compared to $3.4 million a year ago. Borders Group closed seven Waldenbooks Specialty Retail segment stores in the third quarter, ending the period with a total of 652 locations.

    Q3 2006 Non-Operating Adjustments

    All net income and earnings per share figures reported include the impact of non-operating adjustments. For the third quarter this impact totaled an after-tax charge of $2.4 million or $0.04 per share, resulting from asset disposals and store closure costs, as well as accelerated depreciation costs related to store remodels. This compares to an after-tax charge of $1.8 million or $0.02 per share for the same period a year ago.

    Q4 2006 Outlook

    * As stated previously, management projects consolidated earnings of $1.80 to $2.00 per share for the fourth quarter compared to earnings of $1.78 per share for the same period in 2005. The projection includes the impact of non-operating adjustments, expected to be an after-tax charge of $0.08 to $0.14 per share, compared to an after-tax charge of $0.09 per share a year ago.

    * Fourth quarter projections are in part dependent on anticipated benefits from the Borders Rewards loyalty program, which was launched nationwide in February 2006. Because the program was not in place for the holiday period last year, management's assumptions for fourth quarter are based on limited empirical data.

    * Comparable store sales for Borders domestic superstores are expected to range from flat to an increase in the low single digits.

    * Comparable store sales for Waldenbooks Specialty Retail stores are expected to decline in the low to mid single digits.

    * Comparable store sales for International superstores, in local currency, are expected to range from an increase in the low single digits to a decrease in the low single digits.

    Full Year 2006 Outlook

    As stated previously, management estimates that full-year 2006 consolidated earnings per share will range from $0.30 to $0.65, which compares to $1.42 in 2005. This projected range includes the impact of non-operating expenses, expected to be an after-tax charge of $0.18 to $0.24 per share, compared to an after-tax charge of $0.15 per share a year ago.

    Next Financial Release

    Borders Group will issue holiday sales results in mid-January.

    About Borders Group

    Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a leading global retailer of books, music and movies with more than 1,200 stores and over 34,000 employees worldwide. More information on the company is available at http://www.bordersgroupinc.com .

    Safe Harbor Statement

    This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as "projects," "expected," "estimates," "look forward," "continuing," "plans," "guidance," "goal," "will," "may," "intends," "anticipates," and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the company's future financial performance (including sales and earnings guidance), its plans and expected benefits relating to store openings, closings and remodels, the addition of the Seattle's Best Coffee and Paperchase brands to new and certain remodeled stores and its intentions with respect to dividend payments and share repurchases.

    These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the company's forward-looking statements. These risks and uncertainties include, but are not limited to, consumer demand for the company's products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, weather, and other factors; the impact of the Borders Rewards loyalty program; changes in accounting rules; asset impairments relating to under-performing stores or other unusual items; an unexpected increase in competition; uninsured losses from risks such as terrorism, earthquakes, or floods for which no, or limited, insurance coverage is maintained; higher than anticipated interest costs; energy disruptions, shortages or higher than anticipated energy costs; adverse litigation expenses or results; unanticipated work stoppages or increased labor costs; higher than anticipated merchandise or occupancy costs; the performance of the company's strategic initiatives, including international expansion, remodels and the addition of the Seattle's Best Coffee and Paperchase brands to certain Borders stores; the stability and capacity of the company's information systems; the successful opening and integration of the new east coast distribution center; and changes in foreign currency exchange rates.

    Item 1A of the company's Form 10-K for the year ended January 28, 2006 filed with the Securities and Exchange Commission sets forth a more detailed discussion of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and that discussion is incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.

     Borders Group, Inc. Financial Statements

     (dollars in millions, except per share amounts)

     Unaudited

     Sales and Earnings Summary

     Quarter Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (1) (1) Basis

    Domestic Borders Superstores $583.2 $- $583.2

    Waldenbooks Specialty Retail 123.8 - 123.8

    International 144.6 - 144.6

     Total sales 851.6 - 851.6

    Other revenue 8.8 - 8.8

     Total revenue 860.4 - 860.4

    Cost of goods sold, including

     occupancy costs 674.3 1.0 675.3

     Gross margin 186.1 (1.0) 185.1

    Selling, general and administrative

     expenses 233.2 2.0 235.2

    Pre-opening expense 3.9 - 3.9

    Asset impairments and other

     writedowns - 0.9 0.9

     Operating income (loss) (51.0) (3.9) (54.9)

    Interest expense 9.3 - 9.3

     Income (loss) before income

     taxes (60.3) (3.9) (64.2)

    Income taxes (23.6) (1.5) (25.1)

     Net income (loss) $(36.7) $(2.4) $(39.1)

    Basic EPS $(0.60) $(0.04) $(0.64)

    Basic weighted avg. common shares 60.9 60.9 60.9

    Comparable Store Sales

    Domestic Borders Superstores (0.7%)

    Waldenbooks Specialty Retail (5.0%)

    International Borders Superstores (0.3%)

     Quarter Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (2) (2) Basis

    Domestic Borders Superstores $572.9 $- $572.9

    Waldenbooks Specialty Retail 138.4 - 138.4

    International 125.9 - 125.9

     Total sales 837.2 - 837.2

    Other revenue 8.6 - 8.6

     Total revenue 845.8 - 845.8

    Cost of goods sold, including

     occupancy costs 640.4 2.4 642.8

     Gross margin 205.4 (2.4) 203.0

    Selling, general and administrative

     expenses 220.0 (0.5) 219.5

    Pre-opening expense 2.4 - 2.4

    Asset impairments and other

     writedowns - 0.4 0.4

     Operating income (loss) (17.0) (2.3) (19.3)

    Interest expense 3.5 - 3.5

     Income (loss) before income

     taxes (20.5) (2.3) (22.8)

    Income taxes (8.2) (0.5) (8.7)

     Net income (loss) $(12.3) $(1.8) $(14.1)

    Basic EPS $(0.18) $(0.02) $(0.20)

    Basic weighted avg. common shares 69.2 69.2 69.2

    Comparable Store Sales

    Domestic Borders Superstores 0.0%

    Waldenbooks Specialty Retail (5.2%)

    International Borders Superstores (1.9%)

     Sales and Earnings Summary (As Percentage of Total Sales)

     Quarter Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (1) (1) Basis

    Domestic Borders Superstores 68.5% -% 68.5%

    Waldenbooks Specialty Retail 14.5 - 14.5

    International 17.0 - 17.0

     Total sales 100.0 - 100.0

    Other revenue 1.0 - 1.0

     Total revenue 101.0 - 101.0

    Cost of goods sold, including

     occupancy costs 79.2 0.1 79.3

     Gross margin 21.8 (0.1) 21.7

    Selling, general and administrative

     expenses 27.4 0.2 27.6

    Pre-opening expense 0.4 - 0.4

    Asset impairments and other

     writedowns - 0.1 0.1

     Operating income (loss) (6.0) (0.4) (6.4)

    Interest expense 1.1 - 1.1

     Income (loss) before income

     taxes (7.1) (0.4) (7.5)

    Income taxes (2.8) (0.1) (2.9)

    Net income (loss) (4.3)% (0.3)% (4.6)%

     Quarter Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (2) (2) Basis

    Domestic Borders Superstores 68.5% -% 68.5%

    Waldenbooks Specialty Retail 16.5 - 16.5

    International 15.0 - 15.0

     Total sales 100.0 - 100.0

    Other revenue 1.0 - 1.0

     Total revenue 101.0 - 101.0

    Cost of goods sold, including

     occupancy costs 76.5 0.3 76.8

     Gross margin 24.5 (0.3) 24.2

    Selling, general and administrative

     expenses 26.3 - 26.3

    Pre-opening expense 0.3 - 0.3

    Asset impairments and other

     writedowns - - -

     Operating income (loss) (2.1) (0.3) (2.4)

    Interest expense 0.4 - 0.4

     Income (loss) before income

     taxes (2.5) (0.3) (2.8)

    Income taxes (1.0) (0.1) (1.1)

     Net income (loss) (1.5)% (0.2)% (1.7)%

    (1) Results from 2006 were impacted by a number of non-operating items, including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

    (2) Results from 2005 were impacted by a number of non-operating items including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as adjustments made to correct for prior years' lease accounting. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

     Borders Group, Inc. Financial Statements

     (dollars in millions, except per share amounts)

     Unaudited

     Sales and Earnings Summary

     Nine Months Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (1) (1) Basis

    Domestic Borders Superstores $1,789.7 $- $1,789.7

    Waldenbooks Specialty Retail 377.5 - 377.5

    International 400.4 - 400.4

     Total sales 2,567.6 - 2,567.6

    Other revenue 26.9 - 26.9

     Total revenue 2,594.5 - 2,594.5

    Cost of goods sold, including

     occupancy costs 1,997.3 6.6 2,003.9

     Gross margin 597.2 (6.6) 590.6

    Selling, general and administrative

     expenses 682.6 1.3 683.9

    Pre-opening expense 8.1 - 8.1

    Asset impairments and other

     writedowns - 3.5 3.5

     Operating income (loss) (93.5) (11.4) (104.9)

    Interest expense 22.4 - 22.4

     Income (loss) before income

     taxes (115.9) (11.4) (127.3)

    Income taxes (45.4) (4.2) (49.6)

     Net income (loss) $(70.5) $(7.2) $(77.7)

    Basic EPS $(1.12) $(0.11) $(1.23)

    Basic weighted avg. common shares 63.0 63.0 63.0

    Comparable Store Sales

    Domestic Borders Superstores (1.9%)

    Waldenbooks Specialty Retail (8.3%)

    International Borders Superstores (1.1%)

     Nine Months Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (2) (2) Basis

    Domestic Borders Superstores $1,770.8 $- $1,770.8

    Waldenbooks Specialty Retail 432.5 - 432.5

    International 372.7 - 372.7

     Total sales 2,576.0 - 2,576.0

    Other revenue 28.2 - 28.2

     Total revenue 2,604.2 - 2,604.2

    Cost of goods sold, including

     occupancy costs 1,951.1 2.3 1,953.4

     Gross margin 653.1 (2.3) 650.8

    Selling, general and

     administrative expenses 660.4 4.4 664.8

    Pre-opening expense 5.1 - 5.1

    Asset impairments and other

     writedowns - 1.0 1.0

     Operating income (loss) (12.4) (7.7) (20.1)

    Interest expense 9.0 - 9.0

     Income (loss) before income

     taxes (21.4) (7.7) (29.1)

    Income taxes (8.4) (2.6) (11.0)

     Net income (loss) $(13.0) $(5.1) $(18.1)

    Basic EPS $(0.18) $(0.07) $(0.25)

    Basic weighted avg. common shares 71.0 71.0 71.0

    Comparable Store Sales

    Domestic Borders Superstores 0.4%

    Waldenbooks Specialty Retail (2.1%)

    International Borders Superstores (0.2%)

     Sales and Earnings Summary (As Percentage of Total Sales)

     Nine Months Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (1) (1) Basis

    Domestic Borders Superstores 69.7% -% 69.7%

    Waldenbooks Specialty Retail 14.7 - 14.7

    International 15.6 - 15.6

     Total sales 100.0 - 100.0

    Other revenue 1.0 - 1.0

     Total revenue 101.0 - 101.0

    Cost of goods sold, including

     occupancy costs 77.7 0.3 78.0

     Gross margin 23.3 (0.3) 23.0

    Selling, general and administrative

     expenses 26.6 - 26.6

    Pre-opening expense 0.3 - 0.3

    Asset impairments and other

     writedowns - 0.2 0.2

     Operating income (loss) (3.6) (0.5) (4.1)

    Interest expense 0.9 - 0.9

     Income (loss) before income

     taxes (4.5) (0.5) (5.0)

    Income taxes (1.8) (0.2) (2.0)

    Net income (loss) (2.7)% (0.3)% (3.0)%

     Nine Months Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (2) (2) Basis

    Domestic Borders Superstores 68.7% -% 68.7%

    Waldenbooks Specialty Retail 16.8 - 16.8

    International 14.5 - 14.5

     Total sales 100.0 - 100.0

    Other revenue 1.1 - 1.1

     Total revenue 101.1 - 101.1

    Cost of goods sold, including

     occupancy costs 75.7 0.1 75.8

     Gross margin 25.4 (0.1) 25.3

    Selling, general and

     administrative expenses 25.7 0.2 25.9

    Pre-opening expense 0.2 - 0.2

    Asset impairments and other

     writedowns - - -

     Operating income (loss) (0.5) (0.3) (0.8)

    Interest expense 0.3 - 0.3

     Income (loss) before income

     taxes (0.8) (0.3) (1.1)

    Income taxes (0.3) (0.1) (0.4)

     Net income (loss) (0.5)% (0.2)% (0.7)%

    (1) Results from 2006 were impacted by a number of non-operating items, including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as inventory write-offs, distribution center closure costs and severance costs. Partially offsetting these items is income received from the sale of investments. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

    (2) Results from 2005 were impacted by a number of non-operating items including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as adjustments made to correct for prior years' lease accounting. Partially offsetting these costs are other reserve adjustments. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

     Borders Group, Inc. Financial Statements

     (dollars in millions)

     Unaudited

     Condensed Consolidated Balance Sheets

     October 28, October 22, January 28,

     2006 2005 2006

    Assets

     Cash and cash equivalents $42.7 $67.7 $81.6

     Inventory 1,716.9 1,612.9 1,405.9

     Other current assets 163.0 112.3 150.3

     Property and equipment, net 776.6 680.6 703.9

     Other assets and deferred

     charges 106.0 93.0 106.0

     Goodwill 129.9 123.6 124.5

     Total assets $2,935.1 $2,690.1 $2,572.2

    Liabilities, Minority Interest and Stockholders' Equity

     Short-term borrowings and

     current portion of long-term

     debt $623.9 $378.2 $207.1

     Accounts payable 904.5 790.2 660.3

     Other current liabilities 298.6 300.0 443.7

     Long-term debt 5.3 5.4 5.4

     Other long-term liabilities 363.0 319.6 326.6

     Total liabilities 2,195.3 1,793.4 1,643.1

     Minority interest 1.4 1.3 1.3

     Total stockholders' equity 738.4 895.4 927.8

     Total liabilities, minority

     interest and stockholders'

     equity $2,935.1 $2,690.1 $2,572.2

     Store Activity Summary

     Quarter Ended Nine Months Ended Year Ended

     October 28, October 22, October 28, October 22, January 28,

     2006 2005 2006 2005 2006

    Domestic Borders

     Superstores

    Beginning number

     of stores 476 464 473 462 462

    Openings 11 2 18 6 15

    Closings - - (4) (2) (4)

    Ending number of

     stores 487 466 487 466 473

    Ending square

     footage

     (in millions) 12.1 11.7 12.1 11.7 11.8

    Waldenbooks Specialty

     Retail Stores (1)

    Beginning number

     of stores 655 704 678 705 705

    Openings 4 7 7 18 23

    Closings (7) (11) (33) (23) (50)

    Ending number of

     stores 652 700 652 700 678

    Ending square

     footage

     (in millions) 2.5 2.7 2.6 2.7 2.6

    International Borders

     Stores

    Beginning number

     of stores 59 47 55 42 42

    Openings 2 3 6 8 13

    Closings - - - - -

    Ending number

     of stores 61 50 61 50 55

    Ending square

     footage

     (in millions) 1.5 1.3 1.5 1.3 1.4

    Books, etc International

     Stores

    Beginning number

     of stores 31 33 33 35 35

    Openings - - - - -

    Closings (1) - (3) (2) (2)

    Ending number

     of stores 30 33 30 33 33

    Ending square

     footage

     (in millions) 0.2 0.2 0.2 0.2 0.2

    (1) Includes all small format stores in malls, airports and outlet malls.

     Borders Group, Inc. Segment Financial Information

     (dollars in millions, except per share amounts)

     Unaudited

     Quarter Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (3) (3) Basis

    Domestic Borders Superstores

     Sales $583.2 $ - $583.2

     EBITDA (1) 5.5 (1.6) 3.9

     Depreciation expense 22.2 0.2 22.4

     Interest expense (income) (3.2) - (3.2)

     Income taxes (5.2) (0.7) (5.9)

     Net income (loss) (8.3) (1.1) (9.4)

     Net income (loss) per share $(0.13) $(0.02) $(0.15)

    Waldenbooks Specialty Retail

     Sales $123.8 $ - $123.8

     EBITDA (1) (18.6) (0.4) (19.0)

     Depreciation expense 4.5 - 4.5

     Interest expense (income) (9.7) - (9.7)

     Income taxes (5.3) (0.1) (5.4)

     Net income (loss) (8.1) (0.3) (8.4)

     Net income (loss) per share $(0.14) $ - $(0.14)

    International

     Sales $144.6 $ - $144.6

     EBITDA (1) (3.1) (1.7) (4.8)

     Depreciation expense 5.5 - 5.5

     Interest expense (income) 6.4 - 6.4

     Income taxes (5.6) (0.7) (6.3)

     Net income (loss) (9.4) (1.0) (10.4)

     Net income (loss) per share $(0.15) $(0.02) $(0.17)

    Corporate (2)

     EBITDA (1) $(2.6) $ - $(2.6)

     Interest expense (income) 15.8 - 15.8

     Income taxes (7.5) - (7.5)

     Net income (loss) (10.9) - (10.9)

     Net income (loss) per share $(0.18) $ - $(0.18)

    Consolidated

     Sales $851.6 $ - $851.6

     EBITDA (1) (18.8) (3.7) (22.5)

     Depreciation expense 32.2 0.2 32.4

     Interest expense (income) 9.3 - 9.3

     Income taxes (23.6) (1.5) (25.1)

     Net income (loss) (36.7) (2.4) (39.1)

     Net income (loss) per share $(0.60) $(0.04) $(0.64)

     Quarter Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (4) (4) Basis

    Domestic Borders Superstores

     Sales $572.9 $ - $572.9

     EBITDA (1) 26.8 2.6 29.4

     Depreciation expense 19.6 1.0 20.6

     Interest expense (income) (3.7) - (3.7)

     Income taxes 4.3 0.6 4.9

     Net income (loss) 6.6 1.0 7.6

     Net income (loss) per share $0.09 $0.02 $0.11

    Waldenbooks Specialty Retail

     Sales $138.4 $ - $138.4

     EBITDA (1) (12.3) (0.1) (12.4)

     Depreciation expense 3.8 - 3.8

     Interest expense (income) (10.6) - (10.6)

     Income taxes (2.1) (0.1) (2.2)

     Net income (loss) (3.4) - (3.4)

     Net income (loss) per share $(0.05) $ - $(0.05)

    International

     Sales $125.9 $ - $125.9

     EBITDA (1) (1.6) (5.0) (6.6)

     Depreciation expense 4.7 - 4.7

     Interest expense (income) 5.2 - 5.2

     Income taxes (4.6) (1.5) (6.1)

     Net income (loss) (6.9) (3.5) (10.4)

     Net income (loss) per share $(0.10) $(0.05) $(0.15)

    Corporate (2)

     EBITDA (1) $(1.8) $1.2 $(0.6)

     Interest expense (income) 12.6 - 12.6

     Income taxes (5.8) 0.5 (5.3)

     Net income (loss) (8.6) 0.7 (7.9)

     Net income (loss) per share $(0.12) $0.01 $(0.11)

    Consolidated

     Sales $837.2 $ - $837.2

     EBITDA (1) 11.1 (1.3) 9.8

     Depreciation expense 28.1 1.0 29.1

     Interest expense (income) 3.5 - 3.5

     Income taxes (8.2) (0.5) (8.7)

     Net income (loss) (12.3) (1.8) (14.1)

     Net income (loss) per share $(0.18) $(0.02) $(0.20)

    (1) EBITDA is operating income (loss) before depreciation and amortization. EBITDA is not a Generally Accepted Accounting Principles (GAAP) measurement. EBITDA information is being included as we believe it is a commonly used measure of operating performance in the retail industry. EBITDA is provided to enhance an investor's understanding of our operating results. It should not be construed as an alternative to income from operations as an indicator of operating performance or as an alternative to cash flows from operating activities as a measure of liquidity as determined in accordance with GAAP. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as reported may not be comparable to EBITDA as reported by other companies.

    (2) The Corporate segment includes interest expense, various corporate governance costs and corporate incentive costs.

    (3) Results from 2006 were impacted by a number of non-operating items, including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

    (4) Results from 2005 were impacted by a number of non-operating items including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as adjustments made to correct for prior years' lease accounting. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

     Borders Group, Inc. Segment Financial Information

     (dollars in millions, except per share amounts)

     Unaudited

     Nine Months Ended October 28, 2006

     Operating Adjustments GAAP

     Basis (3) (3) Basis

    Domestic Borders Superstores

     Sales $1,789.7 $ - $1,789.7

     EBITDA (1) 57.4 1.3 58.7

     Depreciation expense 63.1 1.6 64.7

     Interest expense (income) (10.9) - (10.9)

     Income taxes 2.1 (0.1) 2.0

     Net income (loss) 3.1 (0.2) 2.9

     Net income (loss) per share $0.05 $ - $0.05

    Waldenbooks Specialty Retail

     Sales $377.5 $ - $377.5

     EBITDA (1) (38.2) (0.9) (39.1)

     Depreciation expense 13.0 - 13.0

     Interest expense (income) (29.7) - (29.7)

     Income taxes (8.5) (0.3) (8.8)

     Net income (loss) (13.0) (0.6) (13.6)

     Net income (loss) per share $(0.21) $(0.01) $(0.22)

    International

     Sales $400.4 $ - $400.4

     EBITDA (1) (13.8) (7.0) (20.8)

     Depreciation expense 15.8 - 15.8

     Interest expense (income) 17.5 - 17.5

     Income taxes (17.5) (2.5) (20.0)

     Net income (loss) (29.6) (4.5) (34.1)

     Net income (loss) per share $(0.47) $(0.07) $(0.54)

    Corporate (2)

     EBITDA (1) $(7.0) $(3.2) $(10.2)

     Interest expense (income) 45.5 - 45.5

     Income taxes (21.5) (1.3) (22.8)

     Net income (loss) (31.0) (1.9) (32.9)

     Net income (loss) per share $(0.49) $(0.03) $(0.52)

    Consolidated

     Sales $2,567.6 $ - $2,567.6

     EBITDA (1) (1.6) (9.8) (11.4)

     Depreciation expense 91.9 1.6 93.5

     Interest expense (income) 22.4 - 22.4

     Income taxes (45.4) (4.2) (49.6)

     Net income (loss) (70.5) (7.2) (77.7)

     Net income (loss) per share $(1.12) $(0.11) $(1.23)

     Nine Months Ended October 22, 2005

     Operating Adjustments GAAP

     Basis (4) (4) Basis

    Domestic Borders Superstores

     Sales $1,770.8 $ - $1,770.8

     EBITDA (1) 101.7 2.1 103.8

     Depreciation expense 59.2 4.4 63.6

     Interest expense (income) (9.4) - (9.4)

     Income taxes 20.2 (0.9) 19.3

     Net income (loss) 31.7 (1.4) 30.3

     Net income (loss) per share $0.45 $(0.02) $0.43

    Waldenbooks Specialty Retail

     Sales $432.5 $ - $432.5

     EBITDA (1) (24.8) (0.9) (25.7)

     Depreciation expense 10.8 - 10.8

     Interest expense (income) (32.5) - (32.5)

     Income taxes (1.2) (0.4) (1.6)

     Net income (loss) (1.9) (0.5) (2.4)

     Net income (loss) per share $(0.02) $(0.01) $(0.03)

    International

     Sales $372.7 $ - $372.7

     EBITDA (1) (0.2) (5.4) (5.6)

     Depreciation expense 13.8 - 13.8

     Interest expense (income) 15.6 - 15.6

     Income taxes (11.9) (1.7) (13.6)

     Net income (loss) (17.7) (3.7) (21.4)

     Net income (loss) per share $(0.25) $(0.05) $(0.30)

    Corporate (2)

     EBITDA (1) $(5.3) $0.9 $(4.4)

     Interest expense (income) 35.3 - 35.3

     Income taxes (15.5) 0.4 (15.1)

     Net income (loss) (25.1) 0.5 (24.6)

     Net income (loss) per share $(0.36) $0.01 $(0.35)

    Consolidated

     Sales $2,576.0 $ - $2,576.0

     EBITDA (1) 71.4 (3.3) 68.1

     Depreciation expense 83.8 4.4 88.2

     Interest expense (income) 9.0 - 9.0

     Income taxes (8.4) (2.6) (11.0)

     Net income (loss) (13.0) (5.1) (18.1)

     Net income (loss) per share $(0.18) $(0.07) $(0.25)

    (1) EBITDA is operating income (loss) before depreciation and amortization. EBITDA is not a Generally Accepted Accounting Principles (GAAP) measurement. EBITDA information is being included as we believe it is a commonly used measure of operating performance in the retail industry. EBITDA is provided to enhance an investor's understanding of our operating results. It should not be construed as an alternative to income from operations as an indicator of operating performance or as an alternative to cash flows from operating activities as a measure of liquidity as determined in accordance with GAAP. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as reported may not be comparable to EBITDA as reported by other companies.

    (2) The Corporate segment includes interest expense, various corporate governance costs and corporate incentive costs.

    (3) Results from 2006 were impacted by a number of non-operating items, including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as inventory write-offs, distribution center closure costs and severance costs. Partially offsetting these items is income received from the sale of investments. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.

    (4) Results from 2005 were impacted by a number of non-operating items including accelerated depreciation, store closure costs and disposals of fixed assets resulting from the remodel program, as well as adjustments made to correct for prior years' lease accounting. Partially offsetting these costs are other reserve adjustments. Therefore, solely for analytical purposes and as an aid to better understand underlying trends, operating basis data are presented excluding these items.
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